Economics PDF

5.5 The bureau of labor statistics (BLS) of the US department of labor surveys households to assemble information on the labor force. Economists define the labor force as all nonmilitary people who are employed and unemployed Economists consider people to be employed if they are 16...

5.5 The bureau of labor statistics (BLS) of the US department of labor surveys households to assemble information on the labor force. Economists define the labor force as all nonmilitary people who are employed and unemployed Economists consider people to be employed if they are 16 years or older and meet at least one of the following requirements 1. They worked at least one hour for pay in the past week 2. They worked 15 hours or more without pay in a family business such as a farm or a family owned store 3. They held jobs but did not work due to illnesses, vacation, labor disputes, or bad weather People who have more than one job are counted only once People who do not meet those criteria are considered unemployed. if they either temporarily without work or are not working but have looked for jobes within the last four weeks. To be counted as unemployed, then a person either must hae work lined up for the future or must be actively searching for a new job The BLS uses the term “discouraged workers” to describe people who once sought work but have given up looking for a job. They are not counted in the unemployed statistics. In addition, full time students, parents who stay home with their children to raise them, and retirees are not considered unemployed but are not counted in employment statistics The BLS provides answers to two important questions (1- how many people are in the labor force, 2- how many are employed and unemployed at any given time) The job market does not stay the same all the time. It grows as the nation's economy and population grow. The jobes that make up the job market also change. New technologies or new industries bring new jobs to life and cause others to fade. Shifts in the job market reflect major shifts in what our economy produces The US was a nation of farmers and most people had few opportunities beyond cotton. The coming of the machine age energized the economy and created new jobs in textile mills and shoe factories and other manufacturing enterprises The spread of computers is not the only change that has transformed the American economy. In the past 100 years the US has shifted from a manufacturing economy to a service economy. The service sector includes financial services banking, education and online services While the number of service jobs has increased the US has lost manufacturing jobs. Many workers have been laid off due to plant closings or moves,too little work or the replacement of jobs by new technology These conditions can be the result of outsourcing, in which companies contract with another company to do a specific job that would otherwise be done by a company's own workers. Most companies will outsource work in some way. Today, capital and labor can be easily moved from place to place and even from country to country.The movement of some of a company's operations or resources to another country is known as offshoring. American firms can build factories and hire workers in countries where wages and other costs are lower. American stores can buy a wide range of goods made in foreign countries to sell in the US As less-skilled manufacturing jobs move overseas, the americans who had filled these jobs had to find new work  These shifts in demand fir workers are another example of supply and demand in operation.demand for skilled service workers is rising, so wages for skilled workers go up. These higher wages persuade more people to train for these jobs to meet the demand. Meanwhile, as demand for manufacturing workers drops off, there is a surplus of these workers who find that they must become more skilled in order to compete in the job market. Businesses have looked abroad not only for factory workers, but also for the labor of highly skilled workers such as computer engineers, software programmers etc. The theory that education increases the efficiency of production and thus results in higher wages is called the learning effect. They show that college-educated workers have higher wages than median weekly income than high school dropouts Another theory about the relationship of education to wages is called the screening effect. This theory suggests that the completion of college signals to employers that a job applicant is intelligent and hardworking Today, most bank tellers and many loan officers are women. Women have also taken a greater role in national defense and in police and fire departments across the country. These changes over the past several decades are clearly shown in labor statistics numbers. The increase may be due to several factors.one is that women were encouraged to pursue a higher education and add to their human capital. By increasing their human capital, they increased their potential earning. In recent times, economists believe that women are being affected by the same economic problems as men, including layoffs and offshoring Full Time workers with part time and temporary workers. These temporary and part time jobs are known as contingent employment The organization that needs the workers pays the temp agency. The agency , in turn, pays the worker a share of that fee , keeping the rest to cover expenses and profit (imp questions- who makes up the labor force) 5.6 Labor is a commodity that is bought and sold. In a free market economy, the market finds its own equilibrium price for labor. In a mixed economy, the government also plays a role The demand for labor comes from private firms and government agencies that hire workers to produce goods and services Demand for labor is called a derived demand, because it is derived, or set, by the demand for another good or service. In this case, that other demand is the demand for what a worker produces. For example, the demand for cooks in a market depends on the demand for restaurant meals. In a competitive labor market, workers are usually paid according to the value of what they produce. For example, competition among restaurants results in a wage for cooks that reflects the cooks productivity. Productivity of labor is the quantity of output produced by a unit of labor The higher the price of labor, the smaller the quantity of labor demanded by employers. Restaurants are most likely to hire more cooks at $12 an hour than at $16 an hour, because the lower costs means they can earn more profits on each cooks labor The supply of labor comes from people willing to work for wages. The higher the wage, the larger the quantity of labor supplied  This is logical. It simply means that the higher the wage for a job, the greater the number of people who will be attracted to that job, a higher wage for cooks encourages people who would choose other occupations to acquire the training required to become a cook We know that at market equilibrium, the quantity of a good supplied will equal the quantity demanded. The equilibrium wage is the wage rate, or price of labor services, that is set when the supply of workers meets the demand for workers in the labor If stores do not hire many additional workers during the summer and a lot of teenagers want to work, the wage will be relatively low. On the other hand, if stores want to hire a lot of teenagers and few teens want to work, the wage will be higher Labor and skills(label) 1. Unskilled labor- requires no specialized skills, education or training. Workers in these jobs usually earn an hourly wage. They include dishwashers, messengers, janitors and many farmworkers 2. Semi-skilled labor- they include lifeguards, word processors, short-order cooks and many construction and factory workers 3. Skilled labor- requires specialized abilities and training to do tasks such as operating complicated equipment. Skilled workers need little supervision, yet usually earn an hourly wage. They include auto mechanics and bank tellers and plumbers and firefighters and chefs and carpenters 4. Professional labor- demands advanced skills and education. Professionals are usually white-collar workers who receive a salary. Bankers, doctor, actors, professional athletes, and computer programmers Labor supply and demand can create a significant difference in pay scales for workers with various skills. For example, labor market for medical doctors is relatively high compared to the market for construction workers. Because the supply of doctors is relatively low and the demand is relatively high, there is a high equilibrium wage This unofficial barrier that sometimes prevents women and minorities from advancing to the top ranks of organizations that are dominated by white men is called a glass ceiling In addition to laws forbidding discrimination, several other factors can affect wage. These include minimum wage laws, workplace safety laws, employer actions and labor union Minimum wage law—congress passed the fair labor standard act. This law created a minimum wage- the lowest amount employers could lawfully pay for most types of work- and required employers to pay overtime for work beyond 40 hours a week. Many states also have their own minimum wage laws. Because of these laws, employers may be forced to pay more than the equilibrium wage for unskilled labor. Supporters of the minimum wage argue that it helps the poorest American workers earn enough to support themselves. Opponents say that artificially increasing the price of labor actually causes a decrease in quantity demanded. In other words, individual employees will earn more, but companies will hire fewer of them Safety law—the federal government created the occupational safety and health administration (OSHA) to establish standards for safer working conditions. OSHA policies were issued in an effort to save lives, prevent injuries, and protect the health of workers in the private sector. All laws requiring certain minimum levels of safety also could have an impact on wages. If a law or policy increases safety at work, it  may also decrease wages because workers are willing to work for lower wages when jobs are safer Employers respond to wage levels—employers may also take actions to try to affect wage levels. For example, a company might try to cut labor costs by substituting machines for people. In other words, employers can replace human capital with physical capital. Take furniture making, for example, in countries where labor is relatively cheap, furniture may be handmade by workers. In the US where labor is relatively expensive, manufacturers have substituted sophisticated machinery for more substitution involving customer service call centers, where automated answering services have replaced live telephone operators to direct incoming calls. Other examples of substituting physical capital for human capital include automated tellers, and mechanized assembly lines, which can eliminate the need for some manufacturing workers. Even if firms cannot use technology to replace labor, they may be able to reduce their labor costs in other ways. For instance, companies may outsource jobs to other parts of the world where labor is more plentiful and therefore cheaper. They may also choose to hire temporary workers. A labor union is an organization of workers that tries to improve working conditions, wages and benefits for its members. One of the key goals of unions is to get wage increases for their members. As you will learn, unions allow workers to negotiate wage levels as a group rather than having to deal individually with employers They offer reasoning 1. Uiuons press employers to raise their members wages 2. When wages go up , the quantity of labor demanded goes down. thus , the number of union jobs decreases 3. As union jobs are cut, more workers are forced to seek nonunion jobs 4. As increase in the supply of nonunion workers causes the wage rate for nonunion jobs to fall In addition, some unions have engaged in featherbedding, negotiating labor contracts that keep unnecessary workers on the company payroll. A notable example of this practice occurred in the railroad industry. In the early days of railroads, a “caboose man” had to ride at the back of the train to operate a rear brake that stopped the train. Yet even after design changes allowed the engineer at the front of the train to operate the rear brake, unions managed to keep caboose man on the payroll. These workers received full wages and benefits for doing nothing 6.1 Money is anything that serves as a medium of exchange, a unit of account , and a store of value A medium of exchange is anything that is used to determine value during the exchange of goods and services. Without money, people acquire goods and services through barter, or the direct exchange of one set of goods and services for another. A barter agreement can be very useful when neither party in a transaction has money to pay for the other's services or goods. It can lead to cost saving.barter is still used in many parts of the world, especially in traditional economies in asia, africa, and latin america. Money serves as a unit of account. That is, money provides a means for comparing the values of goods and services  Other countries have their own forms of money that serve as units of account. The Japanese quoted price is in terms of yen. The russians in terms of rubles, mexicans in terms of pesos Money also serves as a store of value. This means that money keeps its value if you decide to hold on to - or store- it instead of spending it. The money will still be valuable and will be recognized as a medium of exchange weeks or months from now. Money serves as a good store of value with one important exception. Sometimes economies experience a period of rapid inflation In short, when an economy experiences inflation, money does not function as well as a store of value. The coins and paper bill used as money are called currency. In the past. Cattle, salt, dried fish, fish , gold, silver have all served as currency at various times in various places The six characteristics of money 1. Money is durable — objects used as money must outstand the physical wear and tear that comes with being used over and over again 2. Money is portable — people need to be able to take money with them as they go about their daily business 3. Money is divisible — to be useful, money must be easily divided into smaller denominations or units of value 4. Money is uniform — any two units of money must be uniform- that is, the same - in terms of what they will buy. In other words, people must be able to count and measure money accurately 5. There is a limited supply of money 6. Money is acceptable as a form of payment —- finally, everyone in an economy must be able to take the objects that serve as money and exchange them for goods and services. Your money is accepted because the owner of the store can spent it elsewhere to buy something he or she needs or wants The control of the money supply is essential for a flat system to work. If the money supply grows too large, the currency may become worthless due to inflation 6.4 Making loans; banks also perform the important service of providing loans. As you have read, the first banks started doing business when goldsmiths issued paper receipts. These receipts represented gold coins that the goldsmiths held in safe storage for their customers. They would charge a small fee for this service A banking system that keeps only a fraction of its funds on hand and lends out the remainder is called fractional receive banking. The more money a bank lends out, and the higher the interest rate it charges borrowers, the more profits the bank is able to make By making loans, banks help new businesses get started. A business that gets aloan may also help other businesses grow Banks also loans to consumers. For example, banks lend money to people to purchase cars, which are expensive and difficult to pay for all at once. Consumers also borrow money on the interest they charge to consumers.  Bankers must, however, consider the security of the loans they make. Suppose borrowers default, or fail to pay back their loan. Then the bank may lose a large part, or even the entire amount, of the money it has loaned. People who borrow money take a lot of responsibility. They are obligated to pay the bank the amount of money they borrowed in a timely manner, usually on a monthly basis, plus interest. A mortgage is a specific type of loan that is used to buy real estate. Another service that banks provide is issuing credit cards- cards entitling their owners to buy goods and services based on the owners promises to pay. If you do not pay your credit card bill in full when you receive it, you will end up paying a high rate of interest on that loan. A positive aspect of credit cards is that they give people the ability to purchase goods they might not have been able to afford otherwise Interest is the price paid for the use of borrowed money. The amount borrowed is called the principal. Simple interest is interest paid only on principle Making a profit- the largest source of income for banks is the interest they receive from customers who have taken loans. Banks, of course, also pay out interest on customers' savings and most checking accounts. The amount of interest they pay out, however, is less than the amount of interest they charge on loans Types of financial institutions 1. Commercial banks — commercial banks, which traditionally served businesses, offer a wide range of services today. Commercial banks offer checking accounts, accept deposits and make loans to businesses and to individuals 2. Saving banks — it servers people who made smaller deposits and transactions than commercial banks wished to handle At the ATM, banks customers can use a debit card to withdraw money from an account READ ONLY if you use an automated teller machine (atm) you are already familiar with one of the most common types of electronic banking. ATMa are computers that customers can use to deposit money, withdraw cash and obtain account info at their convenience. Instead of having to conduct banking businesses face to face with a teller during the banks hours of operation, you can take care of your finances at an ATM More and more people are using the internet to conduct their financial business. Many banks. Credit unions and other financial institutions money to different accounts automatically deposit their paychecks and pay their bills via computer Stored value cards or smart cards are similar to debit cards. These cards carry embedded magnetic strips or computer chips with account balance info. College students may be issued a smart card to pay for cafeteria food, computer time or photocopying 7.4 General economics conditions, lengthy job searches and seasonal production schedules ar some of the factors that cause unemployment Economists look at four categories of unemployment:fractional, seasonal, structural and cyclical  Frictional unemployment - occurs when people take time to find a job. For example, people might change jobs, be laid off from their current jobs, or need some time to find the right position after they finish their schooling. Hannah was not satisfied working as a nurse in a large hospital last money she left her job to look for a position at a small health clinic Structural unemployment- occurs when workers skills do not match those needed for the jobs that are now available 1. The development of new technology 2. The discovery of new resources 3. Changes in consumer demand 4. Globalization - countries have become more open to foreign trade and investment in a trend called globalization 5. Lack of education - for example Martin barely managed to graduate from high school. When he was hired as a clerk by a local clothing store, he had trouble using the computerized checkout register. The store manager fired martin after just two months because he lacked the skills needed for the job Seasonal unemployment- occurs when industries slow or shut down for a season or make seals shifts in their production schedules seasonal unemployment can also occur as a result of harvest schedules or vacation. Migrant agricultural workers, for example, travel throughout the country to pick fruits and vegetable as various crops come into season Cyclical unemployment- unemployment that rises during economic downturns and falls when the economy improves is called cyclical unemployment. During recessions or downturns in the business cycle the demand for goods and services drops. The resulting slowdown in production causes the demand for labor to drop as well and companies begin to lay off employees. The most damaging example of cyclical unemployment in the twentieth century was the great depression. During the great depression, one remained jobless for years Circumstances outside the economy- sometimes events outside the economy can cause unemployment. Natural disasters also affect employment, hurricane Katrina slammed into the gulf coast region. The powerful storm caused widespread destruction and thoughts of people lost their jobs like covide The unemployment rate, or the percentage of the nation's labor force that is unemployment The goal of full employment- zero unemployment is not an achievable goal in a market economy, even under the best circumstances. Economists generally agree that in an economy that is working properly, an unemployment rate of around 4 to 6 percent is normal. Such an economy would still experience fricital, seasonal, and structural unemployment. In other words, full employment us the level of employment reached when no cyclical unemployment exists Underemployed, that is working at a job for which they are overqualified for working part time when they desire full time work Some people, especially during a long rescission, give up hope of finding work. These discouraged workers have stopped searching for employment and may rely on other family members or savings to support them. Although they are without jobs. Discouraged workers do not appear in the unemployment rate determined by the bureau of labor statistics because they are not actively looking for work